OK, even I forgot the Thursday Thump rule this week!
We felt a little silly very soon after the open and covered up a little more as we had gone out on a limb Wednesday expecting a bounce. Fortunately, we did get a huge jump at the open, which minimized our damages but we are still woefully under covered if the market doesn't come back as we elected to leave ourselves half covered in hopes that today marked the short-term bottom.
We can blame $108 oil and Meredith Whitney for today's drop as both looked very scary to the majority of holdings. Oil stokes inflation fears while Ms. Whitney threatens severe deflation for your virtual portfolio: ""The best-case scenario is that financial firms take the pain quickly and purge assets from their balance sheets. That could bring stock valuations down by as much as 50%, which would be enough so that you could legitimately buy long-term positions," says Whitney.
Make no mistake about it, Whitney is not saying another 15% down from the 35% the financial sector has already fallen, she is saying that the average bank, which was worth $100 last year and is now trading at $65, is really worth just $32.50. It amazed me that this woman is being treated as some kind of genius by the media as she met her husband in 2004 on TV as she made a bearish call on C then, when it was trading at $50, a level that held for 3 years. So NOW Ms. Whitney is right and she is using her 15 minutes of fame to attack all things financial, single handedly causing a world-wide sell-off.
It should not be lost on readers that Meredith Whitney is an analyst for CIBC, the CANADIAN Imperial Bank of Commerce, a group that benefits tremendously from a weak US dollar and weak US financial markets. Her report on CitiGroup cost the bank $15Bn in market cap yesterday, more than the $13.5Bn she predicts they will write down in her doom and gloom (and admitedly worst-case) scenario. With the bank trading at just 6 times earnings, it should take a loss of $90Bn to have that sort of effect but investors are in the mood to panic and Whitney is one very scary lady!
I find it very interesting that she is consistently referred to as an Oppenhiemer analyst on CNBC when that group was folded into CIBC a long time ago and I find it even more interesting that she is given the 4pm "last word" on the markets by CNBC, who's GE Capital parents are one of the last men standing with a boatload of cash and also stand to make Billions off a smack-down of the financial industry.
Timing is indeed everything and Fortune is airing a special on the housing crisis called "An Accident Waiting to Happen" on CNN, who has an excellent group of articles on the morgage crisis here.
The Dow dropped 2.6% for the week, wiping out $369Bn of market cap from the US market – again, more than the total losses projected for all the write-downs on all the mortgages that have been written worldwide. This is ridiculous folks! Do the math – this woman is looking for ANOTHER 50% drop in the financials, conservatively slashing another $1Tn from that industry alone?!? This is a pretty steep price to pay for a $400Bn mistake, especially when you consider that the financials are already down $1 Trillion from their highs and, after a week of reporting from the brokerages, still pretty darn profitable.
Let's remember that back in September Cramer and his pals were already calling for the head of Chuck Prince and NOTHING the bank did to address its issues would satisfy the pack of hyenas that were circling the bank. I know it is difficult to imagine a $200Bn (at the time) bank like CitiGroup being taken down by rumor and innuendo but it is the nature of the banking system that banks simply do not have your money – it is all lent out to others, so it is easy to create panic and have enough people demand to pull money out to create a liquidity issue in even the best run institutions.
There was blood in the water, CitiBank made the most loans so they had the most losses and big headlines that are true give the hyenas all the ammunition they need to create even bigger headlines that are bullshit, because most people who read the headlines never get past the first paragraph, yet alone stop to do the math. This is nothing more than the same nonsense spouted by Bill Ackman et al when he pronounced ABK and MBI insolvent with $12-13Bn in losses EACH, about 10x the value of the combined companies at the time (they have since recovered a bit despite his best efforts).
There are BILLIONS to be made knocking hundreds of Billions of dollars off the financials and I find it interesting that Canada's Whitney is a regular on Fox, which is owned by Murdoch, another very rich institution that stands to make a great deal of money on a weak dollar, it will certainly make his $400M acquisition of Newsday cheaper! There are also Billions to be made calling the bluff of these jokers and this frenzied attack has a very short lifespan as we have just 3 weeks to bank earnings and we find out for sure whether Meredith Whitney is a brilliant analyst or just another rabid hyena attacking at the bidding of her masters.
